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Latest Valuentum Commentary
Aug 11, 2021
Berkshire Hathaway Posts a Solid Second Quarter Earnings Report
Image Shown: Berkshire Hathaway Inc Class B shares are on a nice upward climb of late. On August 7, the insurance and industrial conglomerate Berkshire Hathaway Inc (BRK.A) (BRK.B) reported second-quarter 2021 earnings. We are huge fans of the firm and its storied leader, Warren Buffett (CEO and Chairman). Berkshire Hathaway Class B shares (ticker: BRK.B) are a longtime idea in the Best Ideas Newsletter portfolio, and more recently, shares of BRK.B have regained their upward momentum.
Aug 11, 2021
Cavco Industries Posts a Great Earnings Report
Image Shown: Manufactured and modular housing units, including those made by Cavco Industries Inc, meet a crucial need in the US housing market by offering affordable housing options at a time when home prices are skyrocketing. Image Source: Cavco Industries Inc – July 2021 IR Presentation. On August 5, Cavco Industries reported first quarter earnings for fiscal 2022 (period ended July 3, 2021) that beat both consensus top- and bottom-line estimates. The firm reported record revenues and gross margins last fiscal quarter according to commentary provided by its President and CEO, Bill Boor, within the earnings press release as demand for Cavco Industries’ offerings remains rock-solid in the booming domestic housing market.
Aug 5, 2021
Cavco Industries Is an Intriguing Capital Appreciation Idea
Image Source: Cavco Industries Inc – July 2021 IR Presentation. Cavco Industries designs and builds manufactured homes, modular homes, and similar offerings in the US. Additionally, Cavco Industries provides insurance and financing services that cater to this market. The company’s free cash flow generating abilities are stellar, its growth runway is underpinned by strong housing prices in the US, and the firm has a fortress-like balance sheet even after taking a recently announced acquisition into account. Once the worst of the negative impacts of the COVID-19 pandemic fade away, Cavco Industries’ manufacturing operations will be able to run at more “normalized” levels, thus enabling its financial performance to benefit from rising economies of scale. Demand for Cavco Industries’ offerings and the offerings of its competitors remain incredibly strong, and there is room for multiple winners in this market. We are big fans of Cavco Industries’ capital appreciation upside and view its pending acquisition of Commodore quite favorably given the apparent synergies Cavco Industries should be able to realize.
Jul 19, 2021
Bank Earnings Solid During Second Quarter 2021
Image Source: Bank of America Corporation – Second Quarter of 2021 IR Earnings Presentation. After reviewing the second quarter earnings reports of several major US banking institutions, the domestic economy continues to stage an impressive though uneven economic recovery. Net credit write-offs have been trending aggressively lower of late, a welcome sign. Banks are taking advantage of their improving financial outlook and have been aggressively rewarding shareholders via dividend increases and/or large share buyback programs.
May 11, 2021
Stock Markets Still Healthy, Big Cap Tech and Large Cap Growth Safe Havens
Image Shown: Facebook’s shares are trading below the low end of our fair value estimate range at the time of this writing. The social media giant registers a 10 on the Valuentum Buying Index as it boasts a tremendous financial position with respect to net cash on the balance sheet and future expected free cash flows. Image Source: Valuentum. It’s easy to get spooked sometimes by the market’s volatility, but what we’ve witnessed the past few days is nothing compared to the volatility during the COVID-19 crisis and the Great Financial Crisis before it—and what we eventually expect the proliferation of price-agnostic trading to do to the markets in the years ahead. We continue to like the areas of big cap tech and large cap growth thanks to their strong competitive positions, solid net cash profiles, and robust and growing future expected free cash flow. Facebook remains our top idea for capital appreciation potential. Newmont Mining is our favorite “inflation hedge” within the metals and mining arena, and investors that would like greater exposure to energy and financials may look to more diversified ETFs to gain access to the broader themes of rising energy resource prices and net interest margins. AT&T is a top equity consideration for the high-yield dividend crowd. In the coming weeks and months, we’ll be looking to put some of the dry powder that we raised in January 2021 “to work” in some of the areas we outlined in this article. In the meantime, we’re going to continue to watch this orderly sell-off that’s being driven by valuation model adjustments (to factor in higher inflation expectations) and modest deleveraging from cryptocurrency volatility. All is well.
May 10, 2021
Inflation! How to Think About Value Duration
Image Shown: Longer-duration free cash flow stocks are more impacted by changes in inflationary expectations and interest rates (up or down) than stable and/or stable and growing free cash flow generators. This example shows the impact of falling interest rates (10%-->5%) on stable versus longer-duration hypothetical future free cash flow streams, all else equal (the opposite would directionally be applicable in a rising interest rate environment). There's nothing 'all else equal' in the real world though. In the event of rising inflationary expectations, we would still expect speculative technology stocks to take the biggest hit. On the other hand, we would expect strong and growing free cash flow powerhouses that can price ahead of inflation such as big cap tech to handle the environment well. Though banks, energy, and the metals and mining sectors may lead the market for some time, we still like large cap growth and big cap tech for the long run. What many may be overlooking is that, for those with pricing power, higher inflationary expectations translate into higher product and service prices, too. Big cap tech (and their pricing power) is well-positioned to handle such an environment. We’re not overreacting in any respect, and we’re not going to chase commodity prices or commodity producers higher. Commodity prices are simply too difficult to predict in almost all cases, and banking entities are far too susceptible to boom-and-bust shocks for us to get comfortable with their long-term investment profiles. All in, we’re sticking with companies with strong net cash positions and future expected free cash flows (and solid dividend health, where applicable). Some of the strongest companies that have these characteristics can be found in large cap growth and big cap tech. Facebook remains our top idea for long-term capital appreciation potential. In the meantime, we’re comfortable watching the market chase a rotation into more speculative areas.
May 5, 2021
Berkshire Hathaway Charging Higher
Image Shown: Shares of Berkshire Hathaway Inc Class B stock are on a nice upward climb year-to-date, and we include BRK.B as an idea in the Best Ideas Newsletter portfolio. We continue to be enormous fans of Mr. Buffett, Mr. Munger, and Berkshire Hathaway’s resilient business model and promising free cash flow growth outlook. On May 3, the first business day after Berkshire Hathaway reported its first quarter earnings, shares of BRK.A and BRK.B both moved higher during normal trading hours, a sign investors viewed the industrial conglomerate’s latest update quite favorably. We view Berkshire Hathaway as well-positioned to capitalize on the uneven but ongoing recovery in the US economy as COVID-19 vaccine distribution efforts are now in full swing (underpinning the domestic economy’s favorable outlook as quarantine measures and social distancing requirements are slowly eased across the country).
May 3, 2021
The Real Reasons Why Buffett Wants You in Index Funds
Image Shown: Since mid-June 2015, on a price-only basis, the S&P 500 (SPY) has nearly doubled, while shares of Kinder Morgan have nearly halved. In Morgan Housel’s book The Psychology of Money, chapter 16 leads in with “Beware taking financial cues from people playing a different game than you are.” The people on CNBC are playing a different game than you, and so is Warren Buffett. Buffett’s principles on stock selection are golden, but you must understand that he is near the top of the Forbes’ Billionaires List. He absolutely should be taking his own advice and indexing! With the threat of long-term inflation and price-agnostic trading, the average American, even with a few million in the bank, is not so lucky. Keep your game sharp.
Apr 25, 2021
Our Thoughts on the Insurance Industry
Image Source: AIG. Shares of the SPDR S&P Insurance ETF (KIE) have trailed the performance of the S&P 500 (SPY) dramatically during the past 15 years. Our favorite insurer is Berkshire Hathaway's (BRK.B), and we value its B shares is $229 as of the latest update (the high end of our fair value estimate range is $275); the equity is included the simulated Best Ideas Newsletter portfolio as of this writing. We wouldn't expect to add any pure-play insurer to the simulated Best Ideas Newsletter portfolio without a significant and adequate margin of safety, at prices near the low end of the fair value range. In general, we think we can do much better elsewhere.
Apr 20, 2021
Banks Holding Up Well, Some Feel Pain from Archegos Capital Collapse
Image Shown: Bank of America Corporation has an optimistic view towards the ongoing US economic recovery. Image Source: Bank of America Corporation – First Quarter of 2021 IR Earnings Presentation. Earnings season is now underway! In this article, we cover the performance of two large US banks and the problems facing one major European bank in light of losses stemming from Archegos Capital Management blowing up. Large reserve releases last quarter--due to the US economy holding up better than expected during the coronavirus (‘COVID-19’) pandemic--played an outsized role in bolstering the financial performance of key US banks after these institutions recorded large reserve builds in 2020. Net interest margins (‘NIM’) continue to face headwinds from the low interest rate environment, though noninterest related income (such as income generated from wealth management, investing banking, and other activities) at several banks has come in strong (aided by favorable capital market conditions).
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The High Yield Dividend Newsletter, Best Ideas Newsletter, Dividend Growth Newsletter, Nelson Exclusive publication, and any reports, articles and content found on this website are for information purposes only and should not be considered a solicitation to buy or sell any security. The sources of the data used on this website are believed by Valuentum to be reliable, but the data’s accuracy, completeness or interpretation cannot be guaranteed. Valuentum is not responsible for any errors or omissions or for results obtained from the use of its newsletters, reports, commentary, or publications and accepts no liability for how readers may choose to utilize the content. Valuentum is not a money manager, is not a registered investment advisor and does not offer brokerage or investment banking services. Valuentum, its employees, and affiliates may have long, short or derivative positions in the stock or stocks mentioned on this site.